Transport, 


South  American  Trade-An 
Opportunity  but  Not  a 
Special  Privilege 


An  Address 

Before  the  New  Orleans  Association  of  Commerce 
New  Orleans,  Louisiana,  December  3,  1914 


By 

FAIRFAX  HARRISON 

President,  Southern  Railway  Company 


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SOUTH  AMERICAN  TRADE— AN  OPPORTUNITY  BUT 
NOT  A SPECIAL  PRIVILEGE 

Efforts  to  increase  exports  from  the  United  States  to  the  countries 
of  Central  and  South  America  have  been  part  of  the  foreign  policy  of 
every  administration  at  Washington  since  the  first  Pan-American  Con- 
ference, more  than  twenty  years  ago. 

During  all  that  time — through  the  Pan-American  Union  and  its 
publications,  through  commercial  organizations  of  various  kinds,  and 
through  the  newspapers  and  magazines — a continuous  propaganda  in 
the  interest  of  increased  exports  to  the  Latin- American  countries  has 
been  carried  on.  The  net  result  has  been  that,  in  the  fiscal  year  ended 
June  30,  1914,  sales  of  goods  from  the  United  States  to  all  the  countries 
south  of  Mexico,  except  Panama — the  foreign  trade  of  which  has  been 
largely  incidental  to  the  digging  of  the  Canal — amounted  to  less  than 
one-quarter  of  the  value  of  our  exports  to  the  United  Kingdom  of 
Great  Britain  and  Ireland,  and  our  sales  to  the  little  country  of  Holland 
were  approximately  of  the  same  *valti ft  2s  to  all  the  enormous  territory 
embraced  in  Argentina,  Brazil,  .Colombia,,  Peru,  and  Uruguay. 

These  comparisons  might  be  thought  to  indicate  that  the  campaign 
for  Latin- American  trade  has  been  without  results : but  this  is  not  wholly 
true,  for,  while  our  exports  to  Central  and  South  America  are  relatively 
small,  the  trade  is  growing.  In  the  ten  years  from  1904  to  1914,  exports 
to  Central  and  South  American  countries,  exclusive  of  Panama,  increased 
141  per  cent,  as  compared  with  an  increase  of  but  59  per  cent  in  exports 
to  all  the  other  countries  of  the  world. 

Large  as  the  percentage  of  increase  has  been,  however,  it  has  not 
kept  pace  with  the  growing  demand  which  has  resulted  from  the  great- 
material  development  which  has  taken  place  in  many  of  the  countries, 
for,  of  the  total  imports  into  the  Central  and  South  American  countries, 
exclusive  of  Panama,  less  than  14  per  cent  are  from  the  United  States. 
Analyzing  the  figures  more  closely,  we  find  that  the  Central  American 
countries,  with  relatively  very  small  imports, — slightly  over  $35,000,000 
per  year — buy  48  per  cent  of  their  foreign  purchases  in  the  United 
States,  while  the  South  American  countries,  with  total  imports  amounting, 
in  round  numbers,  to  $1,029,000,000  per  year,  buy  only  12  per  cent  from 
the  United  States.  The  remaining  88  per  cent  of  imports  into  the  South 
American  countries  have,  heretofore,  been  drawn  almost  entirely  from 


Europe  a»d  have  been  made  up  very  largely  of  commodities  that  can  be 
successfully  produced  in  the  United  States. 

The  practical  problem  confronting  the  manufacturers  and  merchants 
of  this  country,  and  especially  those  of  the  Southern  States,  with  their 
advantageous  geographical  relation  to  Central  and  South  America,  is  that 
of  selling  to  those  countries  a larger  percentage  of  the  goods  which 
they  buy  abroad. 

At  the  moment  our  people  have  two  important  advantages  with 
respect  to  this  trade.  One  is  the  opening  of  the  Panama  Canal, 
bringing  the  markets  of  the  Pacific  Coast  of  Central  and  South  America 
into  closer  relation  with  our  Atlantic  and  Gulf  ports.  The  other  is  the 
European  war,  which  has,  for  the  time  being,  curtailed  manufacturing 
in  the  principal  countries  of  Europe,  thrown  their  finances  into  disorder, 
and  disarranged  the  ocean  carrying  trade  of  the  world.  These  great 
events  in  the  world  drama  have  caught  the  imagination  of  the  American 
people,  but  it  is  unfortunate  that  many  of  us  have  assumed  that  they 
have  created  for  us  a special  privilege.  The  fact  is  that  they  have  cre- 
ated fob  us  an  opportunity,  but  it  is  only  another  opportunity  to  win 
the  rewards  which  follow  sustained  and  intelligent  effort. 

The  South  American  countries  have  heretofore  bought  largely,  in 
the  order  named,  from  Great  Britain,  Germany,  and  France,  three  of 
the  nations  now  involved  in  war.  Because  the  war  has  practically 
stopped  shipments  from  Germany  and  has  greatly  reduced  those  from 
Great  Britain  and  France,  the  actual  situation  presents,  as  I have  said, 
a notable  opportunity  for  the  manufacturers  and  merchants,  of  the 
United  States : but  we  should  not  be  deceived  into  believing  that  South 
American  trade  is  a plum  ready  to  fall  into  our  hands  without  our  even 
taking  the  trouble  to  shake  the  tree.  A large  and  profitable  business 
with  those  countries  can  be  built  up,  but,  like  everything  else  worth 
having,  it  can  be  secured  only  by  persistent  and  continued  effort. 

If  this  effort  is  to  be  made  along  the  most  intelligent  lines,  we 
should  first  dispose  of  some  of  the  fallacies  relative  to  our  trade  with 
the  South  American  countries  which  seem  to  be  rooted  in  the  popular 
mind.  First  of  these  is  the  assumption  that  products  of  the  United 
States  have  not  heretofore  made  much  progress  in  the  South  American 
markets.  The  fallacy  of  this  is  shown  by  the  increase  in  10  years  of 
141  per  cent,  to  which  I have  already  referred.  Other  fallacies  are 
that  our  manufacturers  and  merchants  will  not  conform  to  the  South 
American  system  of  credits,  that  they  will  not  pack  their  goods  so  as 
to  meet  the  requirements  of  transportation  to  South  American  ports 

2 

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and  inland  carriage  from  those  ports,  and  that  there  is  a lack  of  steam- 
ship facilities  between  our  ports  and  those  of  South  America.  The 
answer  in  each  case  is  the  increase  of  141  per  cent  in  business  actually 
done.  Those  of  our  exporters  who  have  made  a serious  effort  to  secure 
South  American  trade  have  conformed  to  the  South  American  system 
of  credits — indeed,  it  is  one  of  the  difficulties  of  the  present  situation, 
that,  in  many  cases  in  the  past,,  they  have  done  so  to  their  cost,  for 
when  the  long-time  credits  which  they  gave  have  matured,  they  have 
been  met  by  requests  for  extensions  and  even  by  absolute  failure  to  pay. 
Those  who  have  gone  into  the  trade  and  stayed  in  it  know  all  about  the 
requirements  for  packing  for  each  particular  market  down  to  the 
smallest  detail.  There  are  regular  lines  of  steamers  from  New  York 
to  all  of  the  principal  South  American  countries  and  lines  from  other 
Atlantic  and  Gulf  ports  to  some  of  them,  and,  under  normal  conditions, 
there  has  never  been  any  great  difficulty  in  securing  a tramp  steamer  at 
any  port  for  a solid  cargo. 

There  have  been  more  serious  obstacles  to  a larger  development  of 
trade  to  the  Central  and  South  American  countries  than  the  alleged 
conditions  relative  to  credits,  packing,  and  shipping  facilities.  The  first 
of  these  is  the  fact  that  relatively  few  of  our  manufacturers  and  mer- 
chants have  had  an  effective  desire  to  get  into  that  trade.  In  view  of  the 
universal  acclaim  which  greets  every  movement  that  is  inaugurated  in 
the  interest  of  developing  this  trade,  this  may  seem  like  a broad  state- 
ment: but,  when  I say  that  many  of  our  manufacturers  and  merchants 
do  not  have  an  effective  desire  to  engage  in  this  trade,  what  I mean 
is  that  they  do  not  want  it  enough  to  go  after  it  and  get  it  and  hold  it 
by  the  only  means  by  which  it  can  be  obtained  and  held — persistent  and 
intelligent  effort.  The  fact  is,  that,  when  business  conditions  in  the 
United  States  are  normal,  our  home  demand  has  been  such  that  many 
manufacturers  have  had  no  difficulty  in  disposing  of  their  entire  output 
in  the  home  market.  They  would  be  glad  to  sell  goods  in  the  South 
American  markets  if  the  prices  were  just  right  and  the  business  came 
to  them  without  serious  effort  on  their  part,  but,  in  such  times,  they  do 
not  need  this  business  enough  to  spur  them  on  to  make  any  serious  effort 
to  get  it.  It  is  only  in  times  of  business  depression  in  the  United  States 
that  they  feel  a serious  need  for  broader  foreign  markets. 

Wonderful  as  the  development  of  manufacturing  in  the  United 
States  has  been,  we  can  as  yet,  under  normal  business  conditions,  spare 
only  4J4  per  cent  of  our  manufactured  and  partly  manufactured  goods 
for  export,  whereas,  under  normal  conditions,  the  great  industrial  na- 


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tions  of  England,  Germany,  France,  Belgium  and  Holland  must  look  to 
foreign  markets  for  the  sale  of  60  per  cent  of  their  manufactured  goods. 
In  other  words,  one  of  the  reasons  why  these  European  countries  have 
outdistanced  the  United  States  in  the  competition  for  the  markets  of 
South  America  is  that  the  European  manufacturer  needs  those  markets 
much  more  than  his  competitor  in  the  United  States  and  more  than  we 
will  need  them  until  we  manufacture  at  home  a larger  percentage  of  our 
raw  materials  and  correspondingly  increase  our  production  of  manu- 
factured goods.  I may  illustrate  this  by  referring  to  cotton.  Taking 
one  year  with  another,  about  two-thirds  of  the  cotton  crop  of  the  South 
is  exported  in  the  form  of  raw  cotton,  and  fabrics  made  of  this  fibre 
make  up  a large  percentage  of  the  total  shipments  from  European  coun- 
tries to  South  America.  Obviously,  if  we  are  to  secure  any  greatly 
enlarged  proportion  of  the  cotton  goods  trade  of  those  countries,  we 
must  keep  more  of  our  cotton  at  home  and  manufacture  the  goods  here. 

The  system  that  has  prevailed  in  some  lines,  of  having  goods 
handled  solely  by  commission  merchants,  has  doubtless  been  less  favor- 
able to  the  development  of  South  American  trade  than  would  be  a 
system  of  direct  selling.  Like  some  of  the  rest  of  us,  the  commission 
merchants  often  find  it  necessary  or  expedient  to  conduct  their  business 
in  the  interest  of  the  immediate  tangible  profit  rather  than  the  interest 
of  building  an  enduring,  and  so  an  ultimately  more  profitable,  commerce. 
In  the  South  American  trade,  I am  informed,  this  practice  has  operated 
so  to  increase  the  final  selling  prices  in  South  American  markets  that 
the  competition  of  American  manufactures  with  European  goods  has 
been  put  at  a disadvantage  for  which  the  American  manufacturer  is  not, 
himself,  responsible.  I do  not  criticize  the  commission  merchants,  for 
I appreciate  what  their  own  problem  has  been,  but  I venture  to  suggest 
that  they  are  only  pioneers  and  that  the  largest  use  of  our  present 
opportunity  must  be  based  on  another  system  of  trade.  The  industry 
proposing  to  enter  the  South  American  trade  can  undoubtedly  secure 
the  largest  results  if  it  will  send  its  own  selling  force  into  the  field,  or, 
what  is  perhaps  necessary  in  many  cases,  organize  with  others  in  allied 
lines  of  business,  for  co-operative,  but,  direct,  representation. 

La  Prensa,  the  leading  newspaper  of  Buenos  Aires,  discussing  this 
subject  in  a recent  issue  illustrated  the  advantage  of  direct  selling  as 
follows: 

“A  piece  of  agricultural  machinery  which  an  American  manu- 
facturer prepares  for  export  and  delivers  on  board  in  New  York, 
free  of  all  charges,  for  $25,  is  sold  in  Buenos  Aires  for  $75  or  $100, 


4 


as  the  middlemen  here  and  there,  generally  English  or  Germans, 
make  profits  which  frequently  exceed  those  made  by  the  manufac- 
turers themselves. 

“If  the  manufacturers  had  sales  houses  in  Buenos  Aires,  and 
would  do  business  in  the  manner,  and  on  the  terms  current  in  the 
market,  their  sales  would  be  multiplied  by  a hundred,  and  instead 
of  receiving  the  $25  above  mentioned  they  would  get  double,  and 
even  then  the  article  would  come  out  25  to  50  per  cent  cheaper  to  the 
Argentine  consumer.” 

There  is  another  point  which  we  should  all  bear  in  mind.  It  is  of 
the  utmost  importance.  If  our  trade  with  the  Central  and  South  Amer- 
ican countries  is  to  be  built  on  a solid  foundation,  it  must  be  reciprocal 
in  character.  However  polite  they  are,  the  South  American  peoples 
will  not  buy  from  us  for  sheer  love  of  us  or  even  from  necessity:  they 
want,  or  we  want  to  induce  them  to  want,  to  trade  with  us.  They  are 
high-spirited  peoples  who  achieved  their  political  independence  largely 
for  the  purpose  of  avoiding  being  exploited  in  trade  as  they  were  for 
centuries  under  Spanish  dominion.  We  must,  therefore,  recognize  that 
our  exports  to  each  country  are  to  be  paid  for  by  the  things  which  we 
buy  from  that  country.  Fortunately,  under  present  conditions,  that  is 
easy  for  us.  Taking  Central  and  South  America,  as  a whole,  there  is 
today  a substantial  margin  for  our  exports,  for,  in  round  numbers, 
the  value  of  our  imports  from  those  countries  exceeds  the  value  of  our 
exports  to  them  by  $100,000,000  a year.  That  hundred  million  dollars 
may  be  said  to  measure  the  margin  for  trade  expansion  which  it  should 
be  our  first  endeavor  to  fill  up. 

Another  thing  that  must  be  borne  in  mind  is  that  a lending  country 
is  much  more  advantageously  situated  for  the  development  of  trade  with 
a borrowing  country  than  is  a country  which  is  itself  a borrower.  The 
United  States  is  a borrowing  country.  The  European  countries  which 
have  been  engaged  most  largely  in  the  South  American  trade  have 
been,  with  the  exception  of  Germany,  lending  countries,  and,  although 
the  Germans  have  been  borrowers,  they,  as  well  as  citizens  of  the  other 
European  countries,  have  made  large  investments  in  South  America. 

Growing  out  of  this,  the  financial  relations  of  the  Central  and  South 
American  countries  have  largely  been  with  Europe.  Bonds  of  their  gov- 
ernments are  held  in  Europe,  many  of  their  transportation  and  industrial 
enterprises  have  been  financed  by  European  investors,  bills  for  purchases 
of  goods  from  other  countries  have  almost  uniformly  been  paid  through 
London,  and  banking  facilities  have  largely  been  afforded  by  branches 


5 


of  European  banking  houses.  An  immediate  result  of  this  is  that  the 
European  war  has  profoundly  disturbed  financial  conditions  in  every 
Central  and  South  American  country.  Coincident  with  this,  and  accel- 
erated by  it,  has  been  a recession  of  property  values,  consequent  upon 
the  collapse  of  boom  conditions  in  some  of  the  countries  of  several  years 
duration. 

Such  a condition  was  foreseen  by  an  intelligent  commercial  trav- 
eler, who,  writing  from  Brazil  prior  to  the  beginning  of  the  European 
war,  said : 

“So  long  as  Europe,  which  is  by  far  the  heaviest  buyer  of 
South  American  products,  has  a full  purse  and  the  optimism  to 
invest  or  to  lend  cash  for  industrial  and  other  purposes  here,  the 
wheels  go  round  happily  and  almost  without  friction;  but  let  Europe 
have  use  for  its  money  at  home,  let  the  people  or  the  governments 
either  refuse  to  invest  or  actually  recall  money  already  offered  to 
South  America,  a shudder  goes  through  financial  circles  in  this  part 
of  the  world.” 

The  condition  which  was  thus  foreshadowed  has  been  brought  about, 
and,  as  a result,  the  purchasing  power  of  the  Central  and  South  American 
peoples  has  been,  for  the  time  being,  seriously  impaired  and  the  imme- 
diate outlook  for  securing  for  the  United  States  a large  proportion  of 
the  trade  which  formerly  went  to  Europe  is  not  so  bright  as  it  would 
otherwise  be.  This  emphasizes  the  importance  to  our  people  of  giving 
attention,  at  this  time,  to  measures  to  bring  about,  as  far  as  may  be 
practicable,  a readjustment  of  the  financial  relations  of  those  countries. 
A long  step  in  this  direction  has  already  been  taken  by  one  of  the  leading 
national  banks  of  NevV  York,  which  has  opened  a branch  in  Buenos 
Aires,  is  arranging  to  open  another  in  Rio  de  Janeiro,  and  is  contem- 
plating extending  its  business  into  other  South  American  countries.  Wc 
may  reasonably  expect,  therefore,  that,  whatever  may  be  the  ultimate 
effect  of  the  European  war  on  the  financial  systems  of  the  countries 
involved,  our  exporters  will  find  these  branch  banks  substantially  helpful 
and  that,  to  some  extent  at  least,  South  American  bills  will  be  settled 
through  New  York  instead  of  through  London. 

Although,  as  I have  pointed  out,  there  have  been  ample  shipping 
facilities  for  all  of  the  trade  between  the  United  States  and  Central  and 
South  America,  it  can  not  be  questioned  that  there  would  be  some  advan- 
tage in  having  a larger  proportion  of  this  business  carried  under  the 
American  flag.  Speaking  of  conditions  that  have  heretofore  prevailed, 


6 


the  Ambassador  of  one  of  the  Latin-American  countries  recently  ob- 
served that  the  United  States,  in  this  respect,  was  somewhat  like  a great 
department  store  with  its  shelves  full  of  a vast  variety  of  goods  for  sale 
but  without  its  own  delivery  service  and  dependent  upon  a delivery 
service  operated  by  its  rivals.  What  happens  to  the  business  when  the 
hired  delivery  service  goes  on  strike  is  only  to  be  expected.  While  I 
believe  it  is  possible  for  us  largely  to  increase  our  business  with  the 
Latin-American  countries,  whether  or  not  it  shall  be  performed  by 
American  ships,  there  is  undoubtedly  much  truth  in  the  old  adage: 
“Trade  follows  the  flag.” 

Some  phases  of  the  existing  situation  are  favorable  and  some  are 
unfavorable,  but,  taking  all  the  conditions  as  they  are,  I venture  to  say 
that  this  is  the  most  favorable  opportunity  that  our  people  have  ever 
had,  and  probably  the  most  favorable  that  they  ever  shall  have,  to  build 
up  a great  and  growing  export  trade  to  South  America. 

While  the  present  business  depression  and  deranged  financial  con- 
ditions in  the  South  American  countries  are  unfavorable  to  any  large 
immediate  increase  in  trade,  the  natural  wealth  of  those  countries  has 
been  in  no  way  decreased  and  an  improvement  in  conditions  is  inevitable 
sooner  or  later.  However,  it  would  be  a mistake  for  our  merchants 
and  manufacturers  to  wait  for  better  conditions  before  making  an  effort 
to  enlarge  their  markets  in  South  America.  They  should  get  into  the 
field  at  once,  for,  whatever  may  be  the  final  outcome  of  the  war  now 
in  progress,  its  conclusion  is  sure  to  find  our  European  rivals,  or  some 
of  them,  once  more  in  the  field.  The  length  of  time  during  which 
European  competition  will  be  slackened  will  depend  very  largely  upon 
the  duration  of  the  war  and  upon  its  after  effects  in  decreasing  the 
productiveness  of  the  countries  involved.  Unless  the  loss  of  life  shall 
be  so  great  as  very  appreciably  to  diminish  the  labor  available  for 
productive  enterprises,  I doubt  whether  the  after  effects  upon  the  volume 
of  European  industrial  production  will  be  of  long  duration.  On  this 
point  John  Stuart  Mill,  after  pointing  out  that  capital  is  kept  in  existence 
from  age  to  age  not  by  preservation  but  by  perpetual  reproduction,  says : 

“This  perpetual  consumption  and  reproduction  of  capital  affords 
the  explanation  of  what  has  so  often  excited  wonder,  the  great  rapid- 
ity with  which  countries  recover  from  a state  of  devastation ; the 
disappearance,  in  a short  time,  of  all  traces  of  the  mischiefs  done 
by  earthquakes,  floods,  hurricanes,  and  the  ravages  of  war.  An 
enemy  lays  waste  a country  by  fire  and  sword,  and  destroys  or 
carries  away  nearly  all  the  movable  wealth  existing  in  it ; all  the  inhab- 


7 


itants  are  ruined,  and  yet  in  a few  years  after,  everything  is  much  as 
it  was  before.  This  vis  medicatrix  naturae  has  been  a subject  of 
sterile  astonishment,  or  has  been  cited  to  exemplify  the  wonderful 
strength  of  the  principle  of  saving,  which  can  repair  such  enormous 
losses  in  so  brief  an  interval.  There  is  nothing  at  all  wonderful 
in  the  matter.  What  the  enemy  have  destroyed,  would  have  been 
destroyed  in  a little  time  by  the  inhabitants  themselves : the  wealth 
which  they  so  rapidly  reproduce,  would  have  needed  to  be  repro- 
duced and  would  have  been  reproduced  in  any  case,  and  probably 
in  as  short  a time.  Nothing  is  changed,  except  that  during  the 
reproduction  they  have  not  now  the  advantage  of  consuming  what 
had  been  produced  previously.  The  possibility  of  a rapid  repair  of 
their  disasters,  mainly  depends  on  whether  the  country  has  been 
depopulated.  If  its  effective  population  have  not  been  extirpated 
at  the  time,  and  are  not  starved  afterwards ; then,  with  the  same 
skill  and  knowledge  which  they  had  before,  with  their  land  and 
its  permanent  improvements  undestroyed,  and  the  more  durable 
buildings  probably  unimpaired,  or  only  partially  injured,  they  have 
nearly  all  the  requisites  for  their  former  amount  of  production. 
If  there  is  as  much  of  food  left  to  them,  or  of  valuables  to  buy  food, 
as  enables  them  by  any  amount  of  privation  to  remain  alive  and  in 
working  condition,  they  will  in  a short  time  have  raised  as  great 
a produce  and  acquired  collectively  as  great  wealth  and  as  great  a 
capital  as  before,  by  the  mere  continuance  of  that  ordinary  amount 
of  exertion  which  they  are  accustomed  to  employ  in  their  occupa- 
tions. Nor  does  this  evince  any  strength  in  the  principle  of  saving, 
in  the  popular  sense  of  the  term,  since  what  takes  place  is  not  inten- 
tional abstinence,  but  involuntary  privation.” 

If,  then,  we  are  to  profit  by  the  temporary  slackening  of  European 
competition,  we  should  make  every  effort  to  be  firmly  established  in  the 
South  American  markets  before  our  European  rivals  are  prepared  to  make 
the  aggressive  efforts,  which  they  assuredly  will  make,  to  recover  the 
ground  they  have  lost.  It  is  a situation  which,  I repeat,  calls  for  per- 
sistent and  continued  effort  and  especially  for  immediate  effort. 

In  conclusion,  let  me  say  that  this  opportunity  exists  largely  for  the 
manufacturers  and  merchants  of  the  South,  for  in  our  section  we  are 
producing  successfully  many  of  the  articles  which  the  South  American 
people  buy  outside  of  their  own  countries,  and  we  use  in  the  South 
large  quantities  of  the  commodities  which  they  can  supply  to  the  United 
States.  We  thus  have  the  basis  for  building  up  a reciprocal  commerce 
which  will  bring  profit  to  our  Southern  manufacturers  and  merchants 
and  so  lead  to  increased  direct  transportation  facilities  between  their 
plants  and  our  Southern  ports  and  between  those  ports  and  South 
America. 


